Jurisdiction - Australia
Australia – Legislation For Employee Share Schemes Passed By Both Houses Of Parliament.

29 June, 2015


Legal News & Analysis – Asia Pacific – Australia – Tax


Time To Revisit Your Employee Share Schemes

The Bill to enact the Government’s amendments to the taxation of employee share schemes (ESS) recently passed through the Senate. This means that the Bill has now passed both Houses of Parliament and awaits Royal Assent, which should happen in due course.


The changes will be effective for ESS interests granted on or after 1 July 2015. This represents a great opportunity to revisit your schemes to ensure they achieve the desired tax outcomes for employees.


Improvements To Taxation Of ESSs


The key changes to the ESS rules are:


  • options will typically now be taxed at exercise, rather than at vesting;
  • tax deferral can now be accessed for rights with no real risk of forfeiture, provided the scheme expressly states tax deferral is to apply;
  • employees of eligible start-ups may be eligible for “capital account” treatment for shares issued at a small  (up to 15%) discount and for certain options, with potential capital gains tax discount treatment for equity held for at least 12 months prior to sale;
  • the significant ownership and voting rights limitations have been changed from 5% to 10% (subject to integrity measures);
  • a refund will be available, where an employee chooses not to exercise an option before it lapses;
  • the maximum tax deferral period for ESS interests has increased from seven years to 15 years; and
  • the tax tables used for valuing options have been amended to reflect current market conditions, which has made them more favourable. These can be used for all valuations from 1 July 2015 (even if the options were granted prior to 1 July 2015).


Safe Harbour Valuation Methods And Standard Documents


Treasury has indicated that the ATO is also tracking well on the safe harbour valuation methods and standard documents to assist start-ups implement a scheme in a cost-effective manner. We understand the ATO intends to make these documents available on its website from 1 July 2015.


Baker McKenzie


For further information, please contact:


John Walker, Partner, Baker & McKenzie

[email protected]


Ellen Thomas, Partner, Baker & McKenzie

[email protected]


Erica Kidston, Baker & McKenzie

[email protected]


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